Introduction

Dividends, as the term is generally used, may be defined as those profits of a corporation which are divided among the owners. Except in the case of wasting assets, the law is very explicit in limiting dividends to profits. Therefore profits need to be determined with painstaking care. Most of the major problems met in the determination of profits were discussed in Chapter XXII. Here it is purposed to limit the discussion to one phase of the disposition of profits, viz., as dividends, having treated in Chapter XXIII other appropriations of profit for reserves and surplus. Disposition of Corporation Profits The profits of a solvent going corporation, whether current profits or those reinvested in the business, are owned absolutely by the owners of the corporation and are subject to their disposition and control, except where the law imposes restrictions. Oftentimes, the stockholders themselves impose restrictions by incorporating restrictive provisions in the charter or by-laws of the corporation. Of course, the same power which made them has power to remove them, though the exercise of the amending power is usually more difficult than the original expression of that power in enacting rules. The nature of a corporation is such, however, that many acts and privileges which are _per se_ rights of the stockholders must in their exercise be delegated to others. Thus, while the right of ownership and control of the profits of a corporation is inherent in its proprietorship, the control is indirect—through the medium of a board of directors subject to periodic review and election by the owners. This board, during the period of its incumbency, acts for the stockholders and, during the prosecution of its duties, if performed in good faith, with sound judgment, and without fraudulent intent, is free from interference. Shareholders’ Rights as to Profits Shareholders’ rights in regard to sharing in the profits are therefore dependent upon the action of their elected board of directors. As soon as that board authorizes a dividend, however, its control over the portion of the profits so appropriated ceases except as to the routine of payment of the dividend. The right which the stockholder thereafter possesses is of the same nature as the claim of an outside creditor, and in the event of dissolution the assets of the corporation must be applied to the liquidation of this claim equally with all other unsecured claims. Thus, a claim for dividends must be met before the determination of the net assets with which the ownership of capital stock is liquidated. Directors’ Control over Profits As stated above with regard to profits generally, the directors have entire control of the declaration of dividends, except where limitation is specifically imposed by the state or by the owners as expressed in charter or by-laws. The following expression of directors’ power over profits and dividends, contained in the English Companies (Consolidation) Act of 1908 is typical of most laws covering the question: “The directors may, before recommending any dividend, set aside out of the profits of the company such sums as they think proper as a reserve or reserves which shall, at the discretion of the directors, be applicable for meeting contingencies, or for equalizing dividends, or for any other purpose to which the profits of the company may be properly applied, and pending such application may, at the like discretion, either be employed in the business of the company or be invested in such investments (other than shares of the company) as the directors may from time to time think fit.” Provisos as to Declaration of Dividends Specific provision may be made in the by-laws covering the declaration of dividends. Thus, the directors may there be ordered to set aside for specific purposes a certain amount of the profits earned and to declare dividends only from any residue. This may represent a permanent policy but usually only temporary; that is, periodic reservation of profits may continue until a definitely named reserve (or surplus) has been created, after which all profits become free for such disposition as the directors may see fit to make. A somewhat different policy is occasionally prescribed by which the directors are ordered to pay out of each period’s profits dividends of a named amount, after which any residue shall be carried to a reserve (or surplus). The objection to this latter policy, as ordered in the by-laws, is that it ties the hands of the directors to the division of profits among the owners regardless of the exigencies of new situations, as they arise, bringing very different conditions from those under which the policy was originally ordered. The power of the directors as to declaration of dividends extends not only to common stock but also to preferred. No dividends, common or preferred, can be declared except from profits. Legal inhibition of the payment of dividends out of capital is one of the chief points of difference between the corporate and other forms of business organization. As stated in a preceding section, regulatory bodies and commissions sometimes impose rules compelling corporations over which they have authority to set aside to surplus some portion of the profits before the declaration of any dividend. Stockholders’ Rights to Dividends Where profits exist, either earned currently or accumulated, the matter of a declaration of dividends is thus seen to be always a question of financial policy. In view of the other problems confronting the corporation—its policy of growth and expansion to meet competition and enter other markets, its specific and pressing requirements for funds—the question of the wisdom of a declaration and payment of dividends frequently demands careful consideration. If under the circumstances, in the exercise of their discretion, the directors do not declare dividends, their action is final and, in the absence of fraud or an abuse of discretion, will not usually be interfered with by the courts. Courts do sometimes intervene, however, as in Matter of Rogers, 161 N. Y. 108 (1899): “The directors must act in good faith. If they fail to do so and it clearly appears that they have accumulated earnings not required in the prosecution of the business which they withhold from the stockholders for illegitimate purposes, a court of equity may interfere and compel a distribution of such earnings.” Again, in Hunter v. Roberts, Throp & Co., 83 Mich. 63 (1890), the court said: “Courts of equity will not interfere in the management of the directors unless it is clearly made to appear that they are guilty of fraud or misappropriation of the corporate funds or refuse to declare a dividend when the corporation has a surplus of net profits which it can, without detriment to its business, divide among its stockholders, and when a refusal to do so would amount to such an abuse of discretion as would constitute a fraud or breach of that good faith which they are bound to exercise towards the stockholders.” In the case of preferred dividends, the courts are somewhat readier to act because of the ease of a fraudulent retention of profits. Where stock is non-cumulative and non-participating and particularly if non-voting, it would be possible for a board of directors to refuse dividend declarations for a number of years and then pay to common stockholders most of the profits so saved. Such a policy is so manifestly unfair and fraudulent as to warrant immediate intervention of the court. When stock is cumulative as to unpaid dividends, such a policy could not be practiced, as the corporation cannot declare dividends unless profits are made, nor, except as above stated, need it declare dividends even when profits are made. But upon the declaration of a dividend, the rights of cumulative preferred shareholders require the payment of all accumulation of unpaid dividends before the other classes of stockholders can share. Declaration of Dividends The matter of a declaration of dividends is usually a formal one. The minute book record must always show the authorization. It may appear as a formal resolution or merely as a statement of the declaration. Such resolution or statement will usually carry the amount of the dividend, which may be either a named per cent on the par value of the stock (or the amount paid up on the stock where stock is not full-paid), or it may be a named amount on each share; the date on which it is effective; the date and manner of payment; and to whom payable, i.e., to the stockholders as of a given date. Dividends may be declared to become effective on some future date but never on a past date. Antedating a dividend so as to make it apply to past stockholders who may no longer have any interest in the corporation would manifestly be unfair, opening the way to manipulation and fraud. A stockholder is entitled to notice of every dividend declaration. This may come to him by published notice in the newspapers or through the mails. A dividend check mailed to his last-known address has been held to constitute sufficient notice. Liability of Directors Together with the power and control over dividends by the directors is a responsibility and liability for those wrongly declared. The law is very specific and emphatic in its refusal to allow dividends except from profits. The State of New York in its Stock Corporation Law has this to say with regard to the liability of directors for making unauthorized dividends: “The directors of a stock corporation shall not make dividends, except from the surplus profits arising from the business of such corporation, nor divide, withdraw, or in any way pay to the stockholders or any of them, any part of the capital of such corporation, or reduce its capital stock, except as authorized by law. In the case of any violation of the provisions of this section, the directors under whose administration the same may have happened, except those who may have caused their dissent therefrom to be entered at large upon the minutes of such directors at the time, or were not present when the same happened, shall jointly and severally be liable to such corporation and to the creditors thereof to the full amount of any loss sustained by such corporation or its creditors respectively by reason of such withdrawal, division, or reduction.”[65] [65] Ch. 59 of the Consolidated Laws (Ch. 61, Laws 1909). In some states the liability of directors is made to include, in addition to restitution of the amounts wrongfully paid, liability for all debts contracted during their term of office and even to a body judgment for misdemeanor. The stockholders receiving such a dividend are held to have known of its illegality and are liable for restitution. While payment of dividends out of capital is the most frequent source of illegality, a declaration of dividends contrary to the provisions of the charter or by-laws relative thereto, or a declaration which disregards the rights of other stockholders, is equally illegal. Thus, a dividend paid before reserving profits, where the by-laws require antecedent reservation or one paid to common shareholders ahead of an accumulated dividend to cumulative preferred stockholders, is classed as illegal. Revocation of Dividends A dividend once legally declared and of which _notice_ has been given cannot be revoked. As stated above, such a dividend becomes a claim against the corporation and ranks with the claims of outside creditors. Even further than this, it has been held that if actual funds have been set aside, as by deposit in a bank, for the payment of these dividends, these funds cannot be touched by other creditors in case of insolvency, but must be applied to the payment of dividends. With regard to the revocation of dividends, such action is held to be possible only until the fact of declaration has become known outside the board of directors. The revocation of a dividend is merely looked upon as a reconsideration of business policy. In case of illegally declared dividends, they may be revoked by the directors any time previous to payment and the directors may be enjoined from making payment of them. Payment of Dividends Inasmuch as a declared dividend becomes a debt of the corporation, it may be settled by whatever means another debt might be. Thus, if a stockholder owes anything to the corporation, the debt for dividends may be used as an offset and only the net payment be made or received, as the case may be. In this way dividends may be made to apply to unpaid subscriptions on capital stock. After the declaration of dividends provision must be made to pay them. Before the declaration, a report from the treasurer will have probably shown the financial condition of the company to be such as to warrant the payment. Unless specifically ordered otherwise, payment in cash is understood. Payment of the dividend is a duty of the treasurer. If present at the board meeting when the dividend is declared, that is sufficient notification to him to make arrangement for paying it. If not, notice may come to him verbally, by an inspection of the minute book, or by formal notice from the secretary. Dividends may be paid by check through the mail or by notifying the stockholders to appear at a designated place to claim their dividends. Under this latter procedure, receipt for the dividend is usually made by signature of a form of receipt in the dividend book. Where payment is made by check, the signing of a formal receipt may or may not be required. In a large corporation the stock of which is widely held, a distinct series of checks formally marked “Dividend Check” is made use of. If these checks bear an identification phrase on their face, as Dividend No. ..., indorsement by the holder upon receipt of payment by the bank and the bank’s cancellation stamp undoubtedly constitute sufficient receipt for payment. However, if desirable, a formal receipt may be issued with the check and its return requested. In a small corporation, the regular check series may be used and marked as dividend checks. Dividends Paid as Salaries A peculiar method of payment of dividends is by means of excess salaries—which is largely a matter of bookkeeping. In a close corporation where all the stockholders are officers of the corporation, salaries, in addition to those regularly paid, may be voted in lieu of dividends. The courts have held that, so long as all the parties interested—incorporators, stockholders, directors, and officers—assent to the scheme for the distribution of profits by the payment of salaries, the plan is not objectionable. Salaries so paid would usually be in proportion to holdings of stock and as such become dividends, merely booked as salary. Methods of Paying Dividends An interesting point is raised in the question as to whether it is legal or wise to borrow funds to pay dividends. This question in its turn raises the point as to the various ways in which dividends may be paid. In addition to the payment of dividends in cash, other property owned, such as the stock and bonds of other concerns, even the more or less fixed assets if these can be apportioned, may be used for this purpose. The issue of the company’s obligations in the form of its own bonds, or in a special form of promise to pay known as dividend scrip; and, furthermore, the absorption of the dividend by the business through the issue of its own shares—both these methods have been employed to liquidate the dividend obligation. It will be noted that payment by cash or other asset has the effect of decreasing the assets in order to decrease the liability for dividends; that payment by the issue of bonds or scrip cancels one kind of liability by the issue of another kind; whereas payment by the issue of the company’s own shares liquidates the liability by increasing proprietorship through the issue of stock, thus reinvesting in the business the portion of profits distributed as dividends. Borrowing to Pay Dividends The answer to the question as to the legality of borrowing funds to pay dividends may be inferred from the discussion above as to the status of a declared dividend. Where the question of legality is not involved in the _declaration_ of dividends, i.e., where a declared dividend is legal in all respects, the legality of borrowing to pay the dividend is no more open to question than the legality of borrowing to pay any other legally contracted debt. Though there may be ample profits, the affairs of a corporation may be in such shape financially that the payment of a dividend would result disastrously to the shareholders and even to the creditors. Here it is possible to enjoin the directors from making payment. Action cannot be based on the illegality of making payment but on the abuse of discretion amounting to illegality in the _declaration_ of the dividend. If by so doing the finances of a corporation are not crippled, there is no more legal objection to borrowing to pay a dividend debt than to borrow to pay other debts. The courts have not always held so, however, but the weight of authority seems to be that where profits have been earned but become tied up in the enterprise the corporation may “borrow money on the faith of it and divide that,” may sell the property in which the profits are tied up and distribute the proceeds, or may borrow funds on the general credit of the corporation sufficient to meet the dividend payments. It has even been held that where the income has been applied to the extension and betterment of the plant but the expenditure has been wrongly booked as an expense charge instead of being capitalized, the income so used may be recreated on the books by proper correcting entries and dividends declared and paid therefrom. To the accountant such a procedure seems perfectly correct, though the courts usually look askance at anything savoring of a payment of dividends out of capital. The chief question involved, therefore, in borrowing funds for the payment of dividends is purely a financial one and the wisdom of such a procedure must be based on financial considerations. If from that standpoint, it is deemed feasible to borrow, the further question as to the form of the loan must be considered. Is it for the best financial interest of the company to borrow on short or long time, to create a floating or a funded debt, etc.—these points require consideration and can, of course, be answered only in the light of the conditions prevailing in each case as to the status of the working capital requirements. Dividends Paid in Property, or by Borrowing on Property Payment of dividends by means of property is unusual. It is seldom that the property held can be so divided as to serve this purpose without loss of value. Exception is found in the case of liquidating dividends, discussed on page 445, for which purpose often the shares of stock and bonds of the vendee may be distributed as payment to the vendor’s stockholders. More often, the stocks and bonds will be used as collateral for a loan with which to pay the dividend, or the real estate will be mortgaged for the same purpose, thus effecting a borrowing of funds, a discussion of which has just been given. Plots of land may sometimes be so divided as to be acceptable as equitable shares of a dividend, where the stock of a corporation is held in comparatively large blocks. Bond and Scrip Dividends Reference also has been made to the issue of the company’s own obligations for payment of the dividend. If financial policy dictates a long-term obligation, payment may be made out of any unissued bonds which the company may possess or by means of a bond issue for this specific purpose. More usual, however, is the payment of dividends by means of short-term obligations known as scrip or dividend scrip. Scrip takes many forms. It is usually so drawn as to constitute the corporation’s promise to pay. It may be unconditional, and so negotiable, or it may be hedged about with limiting conditions. Date of payment may be absolute or contingent. Scrip may be convertible into the bonds or stock of the company at the option of either party. Unredeemed scrip may even bear dividends. Usually, however, the issue of scrip is for the purpose of deferring date of payment of the dividend until cash can be accumulated from sale of property or from the profits of the new period. Stock Dividends The one remaining method of settling the dividend claim is by the issue of stock. As pointed out above, the effect of this is to convert some portion of the “margin” or surplus into capital stock. This change in the _form_ of proprietorship is accomplished by a reduction of proprietorship through the declaration of a dividend and an equal increase of proprietorship through payment of the dividend in stock of the company. The effect of a stock dividend, therefore, is to _fix_ a portion of the “margin” so that it becomes a part of the permanent capital of the corporation and, as such, is no longer subject to the direct control of the board of directors. Excepting in states which expressly forbid the stock dividend—and even here the same result is accomplished by other means—its legality is thoroughly established. Thus, in Howell v. Chicago, etc., Ry. Co., 51 Barb. (N. Y.) 378 (1868), the court said: “It becomes immaterial whether such increase (in _capital_) is made by awarding the stock to stockholders as dividends in lieu of money, retaining the money for the purpose of the company, or by paying the stockholders the dividends in cash from the earnings of the company and selling the stock in the market to raise money for the use of the company.” In Williams v. Western Union Telegraph Co., 93 N. Y. 162 (1883), the court ruled: “If it [the corporation] can issue stock in payment of property to be obtained by it as part of its capital for its legitimate uses, why may it not issue stock in payment for property in effect purchased of them [i.e., the shareholders] and added to its permanent capital and which they relinquish the right to have divided? So long as every dollar of stock issued by a corporation is represented by a dollar of property, no harm can result to individuals or the public from distributing stock to stockholders.... All that can be required in any case is that there shall be an actual capital in property representing the amount of share capital issued.” Any unissued or treasury stock in the possession of the company may be used for this purpose and, in the case of unissued stock, becomes full-paid if the property against which it is issued is of equal value to it. If the necessary legal requirements are met, even authority for an issue of new stock may be given and the stock used for the purpose of paying the dividend. _Stock Dividends in Estate Accounting._ An interesting point is raised in estate accounting as to whether a stock dividend should be treated as principal or income as between the life-interest party and the remainderman. In such a case, the _income_ from the stock which yields the dividend belongs to the life-interest party, while the _stock_ itself is the principal and belongs to the remainderman. Of course, any dividend declared before the decedent’s death, though not payable until after it, is a part of the principal of the estate. The original fund of principal being established, all dividends, whether in cash or stock, which disburse current earnings belong to the life-tenant as income. Where a dividend partakes of the nature of a liquidating dividend—i.e., represents a return of some portion of the net worth as at the decedent’s death—the portion so returned should, in equity, be looked upon as principal. Any stock dividend has the effect of lessening the value of the stock previously outstanding by the circumstance that it, while issued at par, after issue takes on its pro rata share in any accumulated margin. Thus, by the very fact of payment of a dividend in stock, the principal of the estate diminishes in value. Courts have usually held this proper, however, but in cases of manifest injustice, as where profits have been reserved in large amounts and thus have come to be treated as a part of the permanent capital, the “cutting of the melon” in the form of a stock dividend would work so markedly to the injury of the value of the principal that exception would be made here. Dividends Proportional to Holdings Dividends must be exactly proportional to the holdings of stock. If there is but one class of stock outstanding, each share must bear the same dividend as every other share. Any other basis of distribution is sufficient cause for asking the intervention of the court. If several classes of stock have been issued, the same requirements hold within each class; but as between the classes themselves the dividend rates may vary, this variation frequently being the differentiating mark. Among the members of any class, therefore, distribution must be made with absolute impartiality, the number of shares held by each determining the amount of dividend for each owner. Also, time and manner of payment, except by special consent, must be the same for every member within each class. To Whom Payable As stated above, the formal resolution declaring the dividend prescribes where it shall go, so there can be made up a list of those to whom the dividends are to be paid. To accomplish this it is usually stated that the stock records for transfer of stock ownership shall be closed between certain named dates and that dividends will be paid to those who appear as shareholders as on the initial date of the closed period. This makes it possible to bring the stock record up to that date and determine who are owners at that time. Thus, a dividend resolution may read somewhat as follows: A dividend, No. 94, of two and one-half per cent (2½%) for the quarter ending March 31, 1918, has been declared by the Board of Directors out of past earnings, payable April 1 to stockholders of record at the close of business March 23. Stock transfer books will be closed from March 23 to April 1 inclusive. The stock records may, however, remain open, the matter being one of convenience only. If a transfer of stock should take place subsequent to the named date of record, sale is usually made ex-dividend. If, however, sale should be made with right to the dividend, notification of the assignment of the dividend before the mailing of the dividend checks by the secretary or treasurer constitutes an order for him to pay the dividend to the new party. The same rule would obtain in the case of a sale made previous to the declaration of dividends but not recorded till afterwards; so also in the case of pledged stock, although payment should be made to the pledgee. Unless the corporation is notified, its list of stockholders according to its records governs in determining the owners of the dividend. Accounting Record Little need be added to what has been said in other places as to the method of handling dividend transactions on the books. Their declaration is booked as a charge against either the current Profit and Loss or the Surplus account, with a credit to Dividends Payable. Their payment by any of the methods already discussed in this chapter cancels the Dividends Payable account and is reflected either by a decrease of assets, an increase of liabilities, or an increase of proprietorship. In setting up the entries, ample explanations should be made in the record itself or by reference to the minute book. As to handling the payment of the dividend, methods vary somewhat. The secretary’s list of stockholders made up from the stock records should show the stockholders according to the kinds of stock they hold, the amount of the holdings of each, the dividend rate on each class, and the amount of the dividend payable to each stockholder. This list, with its calculations verified by the treasurer, is the schedule according to which the dividend checks are made out. Where a separate series of checks is made out for this purpose, it is best to draw a check on general cash for the full amount of the dividend and deposit it to dividend account with the bank. The individual dividend checks are drawn against this account and so the detail of the transaction is kept off the general books. If all checks reach their destination, the dividend liability is canceled. If any are unclaimed, a liability exists on account of them offset by funds appropriated and set aside for its cancellation. If the fund is in the hands of a trustee—which is not usual—and so beyond the control of the corporation, there would be no reason for including the liability on account of such dividends on a balance sheet as of that date. Under most circumstances, the cash in the fund should be counted as cash on hand and the liability shown. When in this way an unexpended balance of cash is shown in dividend account, subsequent charges against it must be carefully watched to see that they are properly authorized, otherwise the way to fraudulent practice is opened. Relation of Capital Losses to Dividends Reference was made in Chapter XXII on “Profits” to the relation of capital losses to dividends. The laws are very explicit in their declaration that dividends shall not be paid out of capital. In this connection two problems treated in Chapter XXII must be reconsidered. Here it is purposed simply to restate them and summarize conclusions. These problems are: (1) the interpretation of the law’s requirements in relation to the payment of dividends without providing for the depletion of wasting assets; and (2) the bearing of the law on dividend payments without making good all previous encroachments on capital. With regard to the first problem, law and practice are pretty well established and are in accord. The decision in the case of Lee v. Neuchatel Asphalte Co., L. R. 41, Ch. D. 1 (1889), has been followed quite generally. There it is held that “if the objects of the company include the sinking of capital in the acquisition of wasting property, even depreciation by waste is not necessarily a revenue charge, but may by the regulations be thrown upon capital.” And again, if a company is formed “to acquire and work a property of a wasting nature, for example, a mine, a quarry, or a patent, the capital expended in acquiring the property may be regarded as sunk and gone, and if the company retains assets sufficient to pay its debts, it appears to me that there is nothing whatever in the Act to prevent any excess of money obtained by working the property over the cost of working it from being divided amongst the shareholders.” The inclusion in the periodic dividend of the return of a portion of the capital thus legalized is approved from a business standpoint on the ground that from its very nature the enterprise is speculative in greater or less degree and creditors are therefore sufficiently warned in their dealings with such a concern. Of course, if any such company expects to be permanently engaged in such enterprises it may be the part of wisdom to reserve from distribution all the capital or whatever portion of it may be necessary to finance each new undertaking. This is solely a matter of business policy, however. “It is for the shareholders to say whether or not they will put by a sinking fund to meet the waste.... They may if they like, but they are not bound so to provide.”[66] [66] Lee v. Neuchatel Asphalte Co. As to the second question raised above, the general rule and practice in this country requires the making good of such losses first and the payment of dividends only from a resulting surplus. Shields v. Hobart, 172 Mo. 491, 517 (1902), states the prevailing law in the matter as follows: “Dividends can properly be declared only from the profits over and above the capital stock and the debts of the company.” There may be circumstances in which this rule may work a very real hardship, and there is some support both in law and in a sense of justice under given conditions for the view that each period stands by itself so far as dividends are concerned, and that there is no need to use the profits of one period to make good the encroachments on capital of a previous period before paying a dividend. In such cases, the remedy is provided by a reduction of capital stock by the amount of the encroachment upon it. The payment of dividends on the remainder is then above question of law or the best business policy. In this connection the student is referred to page 395, Chapter XXII, for an often-quoted decision of the English courts. Liquidating Dividends Any dividend which represents a return of any portion of the capital is to the extent of the portion returned a liquidating dividend. In other words, a payment to a stockholder on account of capital invested is a liquidating dividend. Such a dividend is met when the affairs of a corporation are being wound up. The liquidation of a corporation is discussed in a later chapter. Here the term is only defined because of its relationship to the dividend paid by a corporation which is operating a wasting asset of some sort. Usually the dividends paid by such a concern are not separated as to content, showing how much is profits and how much is a return of capital. A commendable exception to this is seen in the recent dividend notice of the Shattuck Arizona Copper Co., reading as follows: The Board of Directors of Shattuck Arizona Copper Company has this day declared a dividend of Twenty-Five (25c.) cents per share, and a capital distribution of Twenty-Five (25c.) cents per share, payable January 19, 1918, to stockholders of record at the close of business December 31, 1917. Stock Transfer Books do not close. November 30, 1917. If a reserve for depletion of the property is set up, the offsetting charge to Profit and Loss results in that account’s balance showing the true profit. Dividends declared in excess of this represent the part of the capital being returned. In booking these liquidating dividends, the charge must, in strict theory, be made directly against Capital Stock account. A charge to an account called “Capital Liquidated as Dividends,” “Capital Returned to Stockholders in Dividends,” “Capital Payments,” or other self-explanatory title, may be made instead of the direct charge to Capital Stock. If so, such an account should be carried as a valuation account for Capital Stock and shown on the balance sheet as a deduction from Capital Stock. Where, as has been allowed in connection with income tax returns, there has been a revaluation of properties operating wasting assets, and values in excess of the capital stock are established, such excess may be brought onto the books as a charge to Property or Plant and a credit to an account called “Property Surplus” or other similar title. Dividends thereafter declared, provided the depletion charge is made periodically, will be charged as to their profits against Surplus and, as to their return of capital portion, against Property Surplus until that is exhausted, after which the charge should be made as indicated above.